- Kuala Lumpur Kepong Bhd (KLK) has proposed to acquire 100% of TensaChem SA for Euro16.2mil or RM70.4mil.

- TensaChem has net debt of Euro1.6mil and working capital of Euro3.3mil currently.

- TensaChem has a 10ha manufacturing site in Liege, Belgium. It is a surfactants supplier for the personal care industry.

- TensaChem manufactures alcohol sulphates and sulphonic acids. We believe that these are part of the oleochemical product chain.

- The sellers of TensaChem’s shares are individuals and GRI Group, which is incorporated in United Kingdom.

- There are no financial details on TensaChem. Hence, we do not know TensaChem’s potential earnings contribution to KLK’s bottomline.

- Nevertheless, we reckon that TensaChem would support KLK’s existing oleochemical operations in Europe.

- We estimate KLK’s oleochemical production capacity in Europe at 350,000 tonnes per year. The operations are undertaken by KLK Emmerich.

- KLK’s operations in Europe account for roughly 22% of the group’s total oleochemical production capacity (including Indonesia).

- In spite of the significant exposure to Europe, the bulk of KLK’s profits from the oleochemical segment are driven by the Malaysia operations.

- Manufacturing division (mainly oleochemicals) accounted for 27.4% of group pre-tax profit in FY13.

- Maintain HOLD on KLK.

Source: AmeSecurities